Which of the following statements regarding leverage is FALSE? A) | Leverage refers to using borrowed funds to purchase a portion of the securities in the portfolio. |
| B) | As leverage increases, return volatility increases. |
| C) | A leverage-based strategy decreases portfolio returns when the return on the strategy is greater than the cost of borrowed funds. |
| D) | Leverage is beneficial only when the strategy earns a return greater than the cost of borrowing. |
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Answer and Explanation
A leverage-based strategy increases, not decreases portfolio returns when the return on the strategy is greater than the cost of borrowed funds.
A leverage-based strategy increases, not decreases portfolio returns when the return on the strategy is greater than the cost of borrowed funds. |